US Treasury Yields; 120530

Today, the United States is entering uncharted waters. Yield on 10 Treasury Note opened near 1.65%, and is currently 1.62% & falling fast. This measure of return is unprecedented in modern US history; and reflects a surge in unit price, most likely being drive by flight to quality from overseas investors.

Turmoil in the European periphery’s causing many depositors & investors, to “vote with their feet” converting their Euros to greenbacks. This represents a boon to the US, lowering our borrowing costs; but opens the door to Japanese style deflation.

I would expect that the Federal Reserve will soon conduct “Open Market” operations pursuant to the goal of stabilizing Treasury yields. This means selling into a swiftly rising market. Note bond yields move inversely to their price.

The “bond vigilantes” may be afoot but their posse seems to be headed to Europe right now.